How to Pay Taxes on Your Poker Winnings

Submitting your taxes as a poker player can be a daunting task, especially if you’re new to the game. To help make tax season that little more bearable, we’ve created a 7-step process that will provide you with helpful tips for filling an accurate tax return.

1. ARE YOU A PROFESSIONAL OR AN AMATEUR?

Understanding your status as a poker player is the first step in filing your poker taxes. This distinction is important because professionals have different obligations and filing requirements than amateurs.

Generally, a poker player is considered a professional if poker winnings make up the majority of their income. Depending on where you live, poker professionals may be required to obtain a gambling license and pay self-employment tax on poker winnings. The most common way to file your taxes as a professional is to file a Schedule C as a self-employed person. This allows you to deduct business costs from your winnings, helping to reduce your overall tax bill.

If you are an amateur, your poker winnings will be classified as “other income” by the IRS and must be reported on Line 21 of your 1040 form. It is important to note that poker players are responsible for keeping track of their own poker winnings throughout the year, as this information may be requested by the IRS during an audit.

2. GATHER DOCUMENTS FOR FILING YOUR POKER TAX

In order to successfully file your taxes, the proper documents will required in order to do so. You should collect any documents detailing poker winnings, including W-2s from poker tournaments and 1099 forms from poker rooms. A W-2 is a form used to report poker tournament winnings, and the poker room will give you a 1099 if your poker winnings for the year exceed $600. Additionally, you may need to submit bank statements or casino records showing poker winnings. Having all these documents ready will make filing taxes easier and more accurate.

In addition to federal taxation, poker players may also be subject to state income tax on their poker winnings. Depending on the poker player’s residence and the state’s particular regulations, poker players will need to determine whether they must pay state taxes and which forms they need to fill out as well.

SPECIAL NOTE:

There are some cases where international poker players who reside in countries that have a tax treaty with the United States, can be issued an ITIN (Individual Taxpayer Identification Number). What this does is allow the player to pay the local tax authority in the country in which they reside rather than the United States tax authority (IRS). This is ideal for players who live in countries where gambling winnings are not taxed.

So, for international players looking to make a killing playing poker in the US, make sure to apply for an ITIN to avoid paying more taxes on your gambling winnings than you would have anticipated.

3. DETERMINE WHETHER YOU NEED TO PAY ESTIMATED QUARTERLY TAXES

In some situations, poker players may need to (and might want to) pay estimated quarterly taxes. This enables poker players to spread out the tax burden over the course of the year, rather than having to pay it all at once in April. This can be especially helpful for poker players whose income varies significantly from month to month. The life of a poker player can be filled with ups and downs, so having the ability to pay estimated quarterly taxes can keep poker players from facing big surprises at the end of the year.

4. CALCULATE WINNINGS AND LOSSES

This step is truly the biggest and most important piece to paying the appropriate amount of tax, and that is to calculate how much you have won (or lost). Having an accurate account of what you will need to pay at the end of the year is the best way to ensure that you avoid any government or IRS-related issues

For professionals who play a substantial amount and accrue a high-level income, it is probably best to hire an accountant to track your winnings and losses. Amateur players should consider using a poker tracking app to log poker winnings, losses, and tournament buy-ins throughout the year so they can accurately report them.

Some of the most reliable apps are Poker Income Tracker, Hold’em Manager 3, and Poker Copilot. These poker apps will help players record winnings and losses in an organized manner.

5. DETERMINE YOUR DEDUCTIONS

When filing your poker taxes, professional players can also claim deductions for poker-related expenses. Common poker-related deductions include travel expenses for poker tournaments and conventions, poker coaching fees, poker software subscription fees, and other poker-related costs.

In some cases, some players can even deduct their losses from their income. In order to do so, they need to be able to prove that their poker playing activities were intended to make a profit. This means filing a Schedule C when submitting, listing all poker-related expenses–such as travel costs, tournament entrees fees, materials used in poker play (such as cards or chips), and other business-related expenses–and subtracting them from total poker winnings. This will help lower your taxable income and potentially pay less in taxes.

It is important to remember that any amount deducted from taxable income must be proven with receipts or bank statements showing the payment was made. This applies to all business and gambling-related deductions.

When filing, poker players should also keep in mind that there are laws and regulations regarding the amount of deductions you can claim from poker activities. The Internal Revenue Service has rules on how many poker-related expenses are deductible and it is important to make sure you understand these limits before filing your tax return.

Unfortunately, amateur players cannot write off the same expenses as professional players as they are not considered a “business” expense. So, if you play recreationally, don’t try to write-off travel expenses, coaching expenses, or anything similar, as you’ll receive a strongly worded letter from the IRS!

For players who are unsure of what costs can be written off, it is best to consult a tax professional for more information. Just remember to keep accurate records of all the poker-related expenses throughout the year in order to get the most out of your deductions when filing at the end of the year.

6. UTILIZE TAX SOFTWARE

If you are considering doing your taxes yourself, you may want to invest in poker-specific tax software. PokerTaxPro and TurboTax are two of the most popular poker tax preparation sites. Using poker-specific tax software is a great way for players to quickly and accurately file their taxes without having to splurge on an accountant.

Some of the best tax programs (like the ones we mentioned above) even come with poker-specific features, such as the ability to track tournament entry fees, winnings and losses, and other poker-related expenses. So if hiring a professional accountant is not in the cards, then definitely utilize tax software for a better filing experience.

7. FILE YOUR TAXES ON TIME

Once you have determined your poker winnings, losses, and poker-related expenses, it is important to file your taxes on time. Filing late may result in penalties or interest charges from the IRS, and is the last thing you want after a successful year on the felt. Stay consistent in your documentation and tracking throughout the year to make the filing process as seamless as possible.

Additionally, poker players should keep copies of their tax returns for three years after filing. This will come in handy if the IRS comes knocking on your door and you need proof that you were following the proper protocols.

Are Gambling Losses Deductible?

In short, yes and no. The attitude of the IRS towards gambling is the same as your mom and dad who don’t understand poker; you’ll tell them how much you win, and their first question will be “But how much did you lose?” In that sense, gambling losses are deductible, but only up to the amount you’ve won. That may seem like an oxymoron, so let’s look at an example.

In January 2022 you win $10,000 in a poker tournament. Your casino informs the IRS of your big win, so come tax season, they’ll be expecting a healthy payout from you. However, in the next 11 months, you lose a total of $20,000 playing poker, giving you a net loss of -$10,000 for the year.

When it’s time to submit your taxes in 2023, you’ll need to declare your $10,000 win as income. However, you can write off $10,000 of your $20,000 losses against that win. This means you will end up paying a net $0 in tax on your tournament win.

While you can’t write off your entire losses when filling out your tax forms, it’s important to declare your wins and deduct your losses against them; otherwise, the IRS will be expecting their share of your now non-existent winnings!

Do I Need To Report Live And Online Poker Winnings?

Yes! Even if you live in a jurisdiction without legal online poker, you will need to declare your online poker winnings to the IRS. This is why it’s essential that you closely track your wins and losses over the course of the year using apps such as Hold’em Manager. Online poker winnings are reported the same way as live poker winnings; professional players will report them as part of their Schedule C, whereas amateur players will report it as part of their “other income” on their 1040 form.

What Happens If I Have Gambling Winnings In Other States?

When poker players win more than $5,000 or more in a poker tournament, the casino will inform the IRS of your win and send a W-2G form by January of the next tax year. For example, if you win $20,000 in a poker tournament in May 2022, the casino will inform the IRS and send you the form by the end of January 2023.

If you travel around the country to play poker, you may receive multiple forms from casinos that aren’t in your resident state. In this instance, you must fill out the form and declare your winnings in the state where the casino is located. You must also submit this information as part of the tax return for your home state; you cannot get away with only submitting this information in one state. However, your resident state will offer some form of credit/deduction for taxes already paid to a different state, meaning you won’t have to pay taxes twice on your winnings.

CONCLUSION

Poker can be a great way to make money but it comes with its own set of rules and regulations, such as filing taxes. With proper planning poker players can easily navigate the poker tax process, ensure that all required paperwork is filled out correctly, and deduct any eligible poker losses from their taxable income. By doing so, poker players will make sure that they are fully compliant with the IRS, avoid any costly penalties, and can enjoy their winnings responsibly!